Intergenerational Risk Sharing in Time-Consistent Funded Pension Schemes
This paper explores if limiting the transfers between generations can make a funded pension scheme time-consistent. The paper finds that this is possible indeed in a more or less realistic economic environment; it is not the case in general however. The form of the time-consistent scheme (how strong are the limits to transfers) is found to be very responsive to the economic environment. The time-consistent scheme offers lower welfare than the original time-inconsistent scheme, but higher welfare than a defined-contribution scheme without any intergenerational risk sharing.